Nov

30

Experiencing the open today in stocks where it was called down 2 and then open up 2 and rose to up 6 in the first 15 seconds, reminds me…

1. that we can go from an x day high to a y day low in a heartbeat, the same way a piece of wood separates the hands on a ship from life and death, and

2. that the truism of Jeff Watson that all the evils of the pit are gone with the wind, but that they have been replaced with a myriad of electronic fakers, dodges, and contrivances that are just as redoubtable, and

3. that my broker in the S&P pit had the nickname "Pockets," and

4. that the Japanese Nikkei is some 16% below the S&P among other things, and

5. that the worst decline of the 19th century according to contemporaneous reports came in December 1899, just before the end of the decade, and

6. that the years ending in 0 are the most abysmal years, because of the tendency to reevaluate, and be frustrated by taking stock of all our woes the way honeys do around Valentines Day, and

7. that one reason the scholarly Israeli market apparently is so predictive of our own is that their central bank chair, Stanley Fischer, a guru all the central bankers find very sagacious, is helped one is sure by his insistence that all his writings be in Hebrew, and

8. that when the yield curve is downward-sloping there are a myriad of doomsters who tell us that it forecasts an inevitable recession and stock market decline but when now that it is as upward sloping as ever in history, they are not inclined to say it forecasts a boom, and

9. there is much short term money to be made by borrowing short and lending long now with Treasury bills close to 0% and bonds at 4% and that this is a prescription for going bust by "selling premium," as a former colleague liked to put it, and similar carry trades most probably will lead to disaster in other currency markets, and

10. that the central lesson of what caused the 1929 Depression to me after reading several books on the subject including Amity's is that the change of incentives was the cause and that holds throughout the ages even though the idea that the 2009 recession can be successfully treated with the opposite remedies from those that failed during the 1930s goes against all the principles of ever changing Baconian cycles, and

Bill Fallon queries:

I am reading “Practical Speculation”. On page 123 it says you report the trades you make to your readers. Do you still do this? If so, where?

Did you see the USC-UCLA football game last Saturday night? Something unusual happened at the end of the game. With one minute to play, and UCLA behind by two TDs, USC had the ball at midfield. The USC quarterback took a knee as is the sportsmanlike custom, to run out the clock and not run up the score. But UCLA called time out, to a chorus of boos. The UCLA coach apparently wanted to prolong the game, even though the chance of victory was nil. On the next play USC threw a 50 yd TD pass, apparently catching UCLA off guard.

Well, the USC sideline went crazy with excitement, taunting the UCLA players across the field. Both teams then came toward the center of the field yelling and gesturing. Fortunately, no fights occurred. The victor showed what… compassion?, the defeated rejected it, so the victor inflicted more pain, which further humiliated the defeated leading to more anger. I am ccurious if you can draw a parallel to the market as you often do.

Victor Niederhoffer replies:

Mr. Fallon asks a highly relevant question. The market captures every situation from sports and nature. "Never meet a margin call" — your broker called to tell you that you had to come up with more capital to meet your margin as you're overdrawn, but since you're a very good customer he'll give you a five day grace period before it hits his capital. You thank him profusely and triple your losses as the other side knows you have to liquidate. Many others. Beware of Greeks bearing gifts and never look a gift horse in mouth. But it seems the UCLA coach did the right thing. Reminds me of how I often had to hit a man in front of me in squash even when I was ahead 14-3.

As for the predictions, they have been Shanghaid by the hundreds of followers with fives of billions I already have who use our exact stuff.